The Best Business Entity for Professionals

If you are a licensed professional who is looking to shield yourself from personal liability for lawsuits and debt, you may be thinking about forming a Professional Corporation (PC) or Professional Limited Liability Company (PLLC).

Business formation rules for licensed professionals vary by individual state:

• Some states require professionals to form a Professional Corporation or Professional LLC.
• In others states they can operate their businesses as a Sole Proprietor, Partnership, standard Corporation, or standard LLC.
• Other states make provisions for Professional Partnerships.
• Professional Corporations, but not Professional LLCs, are permitted in other states.
• Certain states restrict Professional Corporations and PLLCs to certain groups of professionals. In those states, professionals who are excluded from Professional Corporations and PLLCs normally can conduct business as a standard Corporation or LLC.

Consult the below state-by-stage entity guide for more information regarding the types of professional businesses permitted. Fees listed may vary depending on circumstances that are particular to the formation. And, always be sure to double-check information with your state, as laws concerning business formation and fees are subject to change.

Professional Business Entity Options by State

Before we take a closer look at Professional Corporations and Professional LLCs, let’s consider just what it means to be a licensed professional.

How Do You Know if You’re a Licensed Professional?

Certain career fields require those who work in them to hold a professional license. In fact, the Bureau of Labor Statistics reports that more than 21% of all workers in 2024 needed a license to practice in their field. A professional license is different from a professional certification, primarily because a license is issued by a government agency and a certification comes from a nongovernmental body such as a professional association, school, or business.

Both professional licenses and certifications, however, indicate that their holders have achieved a level of skill or knowledge necessary to perform a certain job. Licenses and certifications must be renewed periodically.

While many workers are required to be licensed, not every licensed professional would be able to form a Professional Corporations or PLLC, as most states limit those business entities to certain types of professionals.

Many jobs in health care, legal services, engineering, education, protective services, and social services require professional licenses, including the following:

• Certified public accountant
• Physician or surgeon
• Physical therapist
• Physical therapist assistant
• Dentist
• Dental hygienist
• Dietician or nutritionist
• Nurse
• Pharmacist
• Veterinarian
• Vet technician
• Attorney
• Public school teacher
• Principal
• School administrator
• Clinical social worker
• Mental health counselor
• Psychologist
• Architect
• Professional engineer
• Law enforcement officer
• Pilot
• Air traffic controller
• Barber
• Cosmetologist
• Real estate agent

You can get more information about professional licenses in your state by contacting the appropriate issuing board or department. Now let’s take a deeper dive into Professional Corporations and Professional LLCs, looking at their similarities and differences and some of the pros and cons of each.

What Is a Professional Corporation?

A Professional Corporation, sometimes called a Professional Service Corporation, is a corporate entity whose owners, or shareholders, are professionals who are licensed to work within a specific field, such as accounting, engineering, health care, or law.

A Professional Corporation must be formed with the purpose of providing professional services, and all shareholders normally must be licensed within the area of that profession. Also, some states restrict this type of business entity from offering more than one professional service. A Professional Corporation formed to provide engineering services, for instance, could not also offer architectural services, even if all shareholders are licensed as architects.

The owners of a Professional Corporation, who also are its employees, appoint a board of directors and officers to run the company and direct business strategy. Some states also require officers and board members to be licensed within the profession.

What to Know About a Professional Corporation’s Liability Protection

Like other Corporations, a Professional Corporation is separate from its owner or owners. That separation protects the owners’ personal assets and guards them from responsibility for debt and liability.

A Professional Corporation also protects owners from being held personally responsible for malpractice committed by business partners. It does not, however, shield them from liability caused by their own malpractice.

A doctor or other professional who causes harm to a patient or customer through a mistake or negligence can be sued, putting their personal assets at risk. For that reason, members of a Professional Corporation should have professional liability insurance, also known as malpractice insurance, to protect themselves.

Forming and Naming a Professional Corporation

A Professional Corporation is formed when owners file Articles of Incorporation with the state in which the business will operate. Unlike other Corporations, however, a Professional Corporation must first get approval to file from the appropriate state licensing board.

In addition to filing formation documents, owners of a Professional Corporation must:

• Designate a registered agent, who is a person or company authorized to receive legal correspondence on behalf of the company
• Draft Corporate Bylaws
• Obtain an Employer Identification Number (EIN)
• Register for payroll taxes
• Obtain business licenses
• Obtain a business bank account
• Hold an initial meeting with the board of directors.

As with any Corporation, owners must choose a name for the business and make sure it’s available with the state. Many states require the official corporate name of a Professional Corporation to include the names of one or more owners or some combination of those names, along with an identifier such as “Corporation,” “Limited,” “Chartered,” or “Professional Corporation.”

What Is a Professional Limited Liability Company?

Not every state allows professionals to form a Professional Limited Liability Company. In those that do, however, professionals can enjoy the benefits offered by the LLC business structure while streamlining the extensive formation and compliance requirements of a Corporation.

Like a standard LLC, a PLLC offers personal asset protection, tax flexibility, and options for how it will be managed.

Members will need to follow the steps necessary to form a Professional LLC:

• File Articles of Organization
• Designate a registered agent
• Obtain an EIN
• Registering for payroll taxes
• Obtain applicable business licenses
• Open a business bank account
• Create an Operating Agreement to outline the terms of the business based on the wishes and needs of its members

Rules Pertaining to a Professional LLC

Like a Professional Corporation, members of a PLLC generally will need to submit their Articles of Organization and other required paperwork to the state licensing board for their profession before sending them to their state’s Secretary of State or similar filing office.

Many states restrict membership of a PLLC to professionals within the licensed profession, although some only require a majority of members to be licensed in the field. And PLLCs often are restricted to only conducting business related to the profession of members.

And although a Professional LLC shields members from personal liability for lawsuits and debts and protects them from being held personally responsible for malpractice on the part of business partners, they are each responsible for their own malpractice.

Professional LLC Management Options

It may vary among states, but most PLLCs can choose whether they’ll be member-managed or manager-managed.

A member-managed PLLC is one in which all members share equal rights in managing the day-to-day operations of the business. That management structure is the default in some states and also applies to a single-member PLLC.

If the PLLC is manager-managed, an outside professional or one or more of its members – but not all members – is designated to oversee the management of the business. A PLLC that will be manager-managed probably must inform the state of that decision, as the default setting in most states is member-managed. How a PLLC will be managed should be carefully laid out in your Operating Agreement.

Comparing Professional Corporations to Professional LLCs

Taxation of Professional Corporations

A Professional Corporation generally is taxed in the same way as a C Corporation, which is the most common type of Corporation and the standard legal structure under IRS rules. A business that files Articles of Incorporation with the state automatically becomes a C Corporation unless it meets certain qualifications for special tax status, such as an S Corporation.

A Professional Corporation or a C Corporation must pay federal corporate taxes, which currently are at 21%, on its earnings before any profits can be distributed to owners. In addition to federal taxes, most states levy corporate taxes on Professional Corporations based on net income, gross receipts, or a combination of those. And because Corporations, including Professional Corporations, are subject to double taxation, shareholders who receive income must pay personal income tax on the money they receive.

The owners of a Professional Corporation can, however, elect for the business to be taxed as an S Corporation, in which case the profits and losses of the business are passed through to the tax returns of each owner, who pays taxes at their personal income tax rate. Owners of an S Corporation also are allowed to deduct business losses on their tax returns.

Taxation of Professional LLCs

Similar to LLCs, a single-member PLLC is considered a disregarded entity for federal tax purposes by the IRS. All income and losses flow directly to the owner, who reports on Schedule C of Form 1040. Qualifying business expenses, including office rent, professional liability insurance, and continuing education costs, can be deducted from taxes.

Owners of single-member PLLCs are responsible for paying self-employment taxes, which in 2025 is levied at 15.3% for Social Security and Medicare.

A PLLC with more than one member is automatically taxed as a partnership for federal tax purposes unless it elects to be taxed as a Corporation. As a Partnership, profits and losses are passed through to members, who file a Form 1065, Return of Partnership Income. A Schedule K-1 with the form outlines each partner’s share, which is reported on a personal tax return.

As with a single-member PLLC, members must pay self-employment taxes, reporting on a Schedule SE.

A Professional LLC can file an election to be taxed as an S Corporation status, which allows it to retain pass-through taxation while classifying a portion of earnings as income while distributing the rest as dividends. This has the potential to reduce the overall tax burden of the business, as salary payments are subject to payroll taxes, while dividend distributions are not.

S Corporations must comply with rules imposed by the IRS, including the need for employees to be given “reasonable compensation” for their work. I strongly suggest consulting with a tax advisor when forming any form of business entity to assure that you choose the best tax options for your business.

How Professional Corporations and Professional LLCs are Similar

As you’ve probably noticed in the information about Professional Corporations and Professional LLCs, there are a number of similarities, including these:

• Both provide some liability protection for owners
• Both must follow the business compliance requirements of the state in which they are located
• Paperwork required for filing a Professional Corporation or Professional LLC with the state must first be submitted to the state licensing board
• Professional Corporations and Professional LLCs normally are restricted to only conducting business that’s directly related to their licensed profession
• Membership in each type of business entity normally is limited to professionals who work in a particular field, such as physicians or attorneys
• Both can elect to be classified as an S Corporation by the IRS for tax purposes

How Professional Corporations and Professional LLCs are Different

• A Professional Corporation is normally subject to more extensive formation and ongoing compliance requirements than Professional LLC
• Owners of a Professional Corporation appoint a board of directors and officers to run the business, while PLLCs are either member-managed or manager-managed
• By default, a Professional LLC is taxed as a pass-through entity, while a Professional Corporation is treated as a C Corporation for tax purposes

Potential Pros and Cons of Professional Corporations and Professional LLCs

As with every type of business structure, there are some potential pros and cons to Professional Corporations and PLLCs and you should consider them carefully before deciding which type of business would be better for you. Here are some considerations to think about.

Professional Corporation Pros:

• Protects Professional Corporation shareholders from personal liability for the legal issues and debts of the company
• Protects owners from liability for the malpractice of fellow members
• Allows the company to sell stock to raise funds for business initiatives and expansion
• May opt to be treated as an S Corporation for income tax purposes if IRS eligibility requirements are met
• Has perpetual existence, enabling the Professional Corporations to continue when individual shareholders leave the company or pass away

Professional Corporation Cons:

• Not recognized in all states as a legal business structure
• May be limited to only certain licensed professions
• Subject to double taxation under the default tax treatment method
• Must deal with more formation paperwork and tasks than a PLLC
• Has more extensive ongoing business compliance requirements than a PLLC

Professional LLC Pros:

• Protects members from personal liability for legal issues and debts of the company
• Protects members from liability for the malpractice of fellow members
• May choose to be taxed as a disregarded pass-through entity or as an S Corporation
• Can choose whether to be member-managed or manager-managed
• Faces fewer formation and business compliance requirements than a Corporation or Professional Corporations
• If specified in its Operating Agreement, a PPLC has perpetual existence, enabling it to continue when individual members leave the company or pass away

Professional LLC Cons:

• Not recognized in all states as a legal business structure
• May be limited to only certain licensed professions
• Might result in a heavy self-employment tax burden on members

Deciding What’s Right for You

While a Professional Corporation and a Professional LLC can both be an advantageous type of business structure for professionals, there are many factors to consider when choosing what’s right for your circumstances.

Because there’s a lot riding on your decision, I recommend that you seek guidance from one or more professionals before starting the formation process for your business. A good start is foundational for any business and can help assure your success.